By Fast Brokers – The EUR/USD posted a solid recovery yesterday, exhibiting more strength than we expected considering Thursday’s economic data was nothing to cheer about. Furthermore, the S&P futures hung beneath 1000, providing little motive to devalue the Dollar. Investors may have been reacting to the breakout in gold since the Dollar has been negatively correlated with the Greenback. Gold surged to $980/oz and was the talk of the town. Therefore, investors may have taken gold’s ascent as a hint that the Dollar should head lower. On the other hand, investors may have been comfortable keeping the EUR/USD afloat since the S&P’s recent contraction was mostly influenced by psychological factors. Either way, the FX markets have been difficult to track lately with the major Dollar crosses sending mixed signals. This tells us the Dollar may be approaching a turning point as investors grow anxious and jockey for position.
Meanwhile, the EUR/USD has returned earlier gains and is trading smack in the middle of our trend lines after U.S. weekly Unemployment Claims came in slightly above analyst expectations. America’s much anticipated ISM Services PMI data printed in line with estimates, only making the present picture muddier. We have yet to receive the market moving headlines we were anticipating. The ECB kept its benchmark rate at 1% while Trichet remained cautiously optimistic as anticipated. EU data has impressed on all fronts lately, including this week’s Flash CPI. Therefore, the ECB had little reason to act other than to deliver a monetary shock. Due to the Euro’s resounding positive data, we anticipate the EUR/GBP could find bottom sometime soon as investors continue to snap up an oversold Pound. It’s the EU’s turn to take a break from economic data next week, so British data will need to present a strong case to gain back its relative strength. EU data is finished for the week, so the focus will turn to the G20 meetings and key employment data from the U.S. tomorrow.
Despite present indecisiveness in the EUR/USD, all three tiers of our trend lines are coming together beautifully with multiple inflection points on the horizon. The behavior of our trend lines indicates a turning point may finally be approaching. We’ve witnessed counterbalancing buy-side and sell-side volume with the currency pair experiencing lower highs and higher lows (9/01 excluded). Hence, the next near-term leg is hanging in the balance, though there remains a certain downward tendency in the currency pair due to recent weakness in the S&P. As the summer winds down, we anticipate volume and volatility could return once again. The G20 meetings have been flying in under the radar and start up tomorrow. A potential market mover tomorrow could be a surprise in U.S. unemployment data. However, we believe the G20 meetings could be the wild card. We wouldn’t be surprised to see the topic of a new monetary standard return in a big way since volatility in the FX markets has abated. China may take the G20 meeting as an opportunity to breach the topic on a larger stage. Such a move could provide the jolt of volatility the EUR/USD’s inflection points are indicating. On the other hand, the EUR/USD may just opt to continue its erratic consolidation.
Technically speaking, our 3rd tier uptrend and downtrend lines play the largest trend-setting role on our chart. If our 3rd tier downtrend line fails, we anticipate a retest of August highs. On the flipside, a retracement below our 3rd tier uptrend line could result in a retest of August lows. Meanwhile, the 1.40 and 1.45 psychological patiently wait in opposite directions. Investors should keep a close eye on the S&P futures. If the S&P futures should continue their downward momentum and head below technical supports the EUR/USD would likely exercise its positive correlation with U.S. equities.
Present Price: 1.4287
Resistances: 1.4300, 1.4309, 1.4327, 1.4347, 1.4366
Supports: 1.4276, 1.4261, 1.4251, 1.4224, 1.4208
Psychological: 1.40, 1.45
Market Commentary provided by Fast Brokers.
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